A key measure of U.S. inflation accelerated in April to its highest level in three years, deepening the financial squeeze on American households less than six months before the midterm elections.
The Commerce Department said Thursday that the personal consumption expenditures price index rose 3.8% in April from a year earlier, up from 3.5% in March and the highest annual increase since May 2023. Prices rose 0.4% compared to the previous month, a slowdown from March's 0.7% jump but still above the pace Federal Reserve officials want to see as they try to bring inflation back to their 2% target.
Groceries, clothing, and electricity also rose, a sign that inflation may be spreading through more parts of the economy. Core inflation, which strips out volatile food and energy costs, rose 3.3% from a year earlier, up from 3.2% in March and the highest since October 2023.
The figures cloud the outlook for the Federal Reserve, which has been weighing whether to cut interest rates this year. This could lead some policymakers to keep rates higher for longer.
Others have suggested the central bank's next move could even be a hike if inflation keeps accelerating. For households, the damage is already visible as personal income was unchanged in April from March, the Commerce Department said. After adjusting for inflation, income fell 0.1%, meaning many Americans effectively had less money to spend even if their paychecks looked the same.
Consumer spending rose 0.5% in April, but much of that increase reflected higher prices. Adjusted for inflation, spending rose only 0.1%, down from 0.3% the previous month. That suggests Americans are paying more without buying much more.
"Signs of stress are building inside the American household across the economy," Joe Brusuelas, chief economist at RSM, told AP. He said inflation-adjusted spending and disposable income point to slower spending in May as inflation approaches a peak caused by a major supply shock.
Gasoline remains one of the clearest examples of the squeeze. AAA reported a national average of about $4.43 a gallon Thursday, after prices averaged about $4.50 for three weeks this month. Gas cost $2.98 a gallon the day before the Iran war began, making fuel one of the most visible sources of frustration for consumers.
The broader economy is also losing steam. A separate Commerce Department report showed that gross domestic product grew at a 1.6% annual pace from January through March, a downgrade from the government's earlier estimate of 2%.
The figure marked a rebound from the weak 0.5% expansion in the final quarter of 2025, when a 43-day federal government shutdown weighed on growth, but it still pointed to a modest economy.
Higher service costs are adding to the pressure. Prices for dental visits, car repairs, and veterinarian services have risen sharply. Clothing, toys, and groceries have also posted notable increases, while electricity prices have jumped from a year earlier. Rapid investment in artificial intelligence data centers may be adding another wrinkle.
AP reported that demand tied to AI infrastructure appears to be driving up costs for computer equipment and software, contributing to inflationary pressure in parts of the economy that had not been at the center of the debate.
.png?w=600)
